The Land Bank of the Philippines (Landbank) board has priced at P360 per share the state-run lender’s offer to acquire a majority stake in the Philippine Dealing System Holdings Corp. (PDS Group).
In a text message to reporters on Thursday, Landbank president and CEO Alex Buenaventura said their board of directors approved the proposal to purchase at least 66.67 percent of total PDS common shares at the said price last February 27.
The Landbank board approved in principle in January the acquisition of a controlling interest in PDS Group and that they proceeded to finish their due diligence for the transaction, Buenaventura said.
PDS Group is the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp., Philippine Depositary and Trust Corp., and Philippine Securities Settlement Corp.
Landbank already notified the Securities and Exchange Commission that it would seek exemptive relief from regulatory limits on exchange ownership.
Buenaventura’s plan to acquire two-thirds of PDS runs counter to the planned merger of the latter with the Philippine Stock Exchange.
Finance Secretary Carlos G. Dominguez III, who chairs Landbank, earlier lamented that the PSE was not being compliant with the conditions set for its merger with PDS.
In a January 16 letter to Landbank’s board of directors, Buenaventura recommended the acquisition of at least 66.67 percent of PDS.
“On June 15, 2017, the Bankers Association of the Philippines signed a share purchase agreement allowing the Philippine Stock Exchange (PSE) to purchase 1,488,902 common shares equivalent to 23.8 percent of the total outstanding stock of PDS for P476,448,640 or at P320 per share. This implies a valuation of P2 billion for PDS and a PE ratio of 8.10x based on 2016 PDS earnings,” Buenaventura explained.
“Research on the financials of comparable market infrastructure enterprises in the region and globally shows that such businesses trade at an average LTM PE ratio of 34.1x and 35.8x, respectively. This indicates that at a price of P320 per share, PDS is undervalued and purchasing PDS shares could be a profitable investment for Landbank,” Buenaventura added.
According to Buenaventura, Landbank would benefit from stable recurring cash flow from the various fees PDS charges to market players as the country’s central securities depository and fixed-income exchange.
More than 70 percent of the income of PDS is from the provision of services as a depository, registry, and financial intermediary; and over 20 percent of revenues come from trading services, another area of opportunity as the local bond market matures.
“PDS has an asset-light business model and consistently registers healthy Ebitda margins above 45 percent, and wide net profit margins above 25 percent. PDS reported an ROE of 14.4 percent and 15.1 percent in 2015 and 2016, respectively, which is depressed due to significant excess cash and liquid assets. From 2014 to 2016, PDS exhibited a CAGR of 9.1 percent, with opportunities for improvement as the domestic fixed income market still lags behind some of its Asean neighbors in terms of market size and liquidity,” Buenaventura noted.
The acquisition’s objectives include increasing Landbank’s profit as well as accelerating the development of the country’s capital markets, according to Buenaventura. /kga
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